36th USAEE/IAEE: NORTH AMERICAN CONFERENCEE Washington DC, United States September 23-26 2018 Removing destination clauses: The implications on long-term LNG demand in APEC Fang-Chia LEE Researcher, APERC

Background APEC Members The Asia-Pacific Economic Cooperation (APEC) : established in 1989, a regional economic forum in the Asia-Pacific, with 21 member economies APEC Members Australia Brunei Darussalam Canada Chile China Hong Kong, China Indonesia Japan Republic of Korea Malaysia Mexico New Zealand Papua New Guinea Peru Philippines Russia Singapore Chinese Taipei Thailand United States Viet Nam The Asia Pacific Energy Research Centre (APERC) : established in 1996, following the directives of APEC Leaders,

Total primary energy supply by fuel, 2010-2050

What is destination clause? A destination clause a clause that designates a list of unloading terminals as destination ports of LNG ships. In other words, the clause prevents buyers from reselling LNG to other users. Japan’s survey Japan Fair Trade Commission (JFTC) released a report Survey on LNG Trades: Ensuring of fair competition in LNG trades. It concludes destination clause is highly like to breach Antimonopoly Act. Possible factors of the inclusion of destination clause 1) For buyers: to ensure stable supply when there were few suppliers 2) For sellers: to restrain competition; to ensure recouping their investment (for equity holders as well); to include as a guarantee to get approval from authorities and obtain a lower interest rate loan 3) For buyers and sellers: minimize the delay or interruption of a supplier’s operation; to serve to guarantee the trade as distance may create various uncertainties EU cases NLNG (Nigerian LNG Ltd) 2002 Gazprom-ENI, 2003 GDF-ENI, GDF-ENEL 2004 Sonatrach 2003, 2007 Qatar Petroleum 2018 (ongoing)

Projected natural gas supply gap in APEC, 2015-2050 (Mtoe)

Conclusion Gas is projected to grow the most rapidly in APEC among all the fuels, which implies LNG demand continues to grow. The projected gas supply gap in APEC economies presents opportunities for LNG exporters. US is the most promising LNG exporter to fill up the supply gap, given the US LNG exporters do not have the legacy issues of a destination clause, which makes them very flexible options for importers in APEC.

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